INTRODUCTION

To ensure redressal of grievances of users of banking services in an inexpensive, expeditious,

fair and reasonable manner that will provide impetus to improved customer services in the
banking sector on a continuous basis,the Banking Ombudsman Scheme was introduced under
Section 35A of the Banking Regulation Act, 1949 by the Reserve Bank of India with effect
from 1995 .In the present banking system, excellence in customer service is the most
important tool for sustained business growth. Customer complaints are part of the business
life of any corporate entity. This is more so for banks because they are service organizations.
Over a period of time, the number of complaints against banks with regard to deficiency of
their services has been in spite of several efforts taken by the banks on the advice of the
Reserve Bank of India.

All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-
operative Banks are covered under the Scheme and the Banking Ombudsman can receive and
consider any complaint relating to deficiency in banking services. One can file a complaint7
before the Banking Ombudsman if a reply is not received from the bank within a period of
one month after the bank concerned has received one's representation, or the bank rejects the
complaint, or if the complainant is not satisfied with the reply given by the bank.

CONCEPTS OF BANKING OMBUDSMAN SCHEME

The institution of banking offers opportunity for investors and channelizes the resources
available for the growth and sustenance of trade, commerce and industry, and, hence, an
efficient banking system is necessary for the growth of the national economy. It is necessary
that in such a system checks and balances be introduced to reduce inefficiency and mal
administration. Moreover, the quality of the service of the banks depends upon the service
provided to the customers and same determines the reputation and growth of the bank.
Banking being public utility services and in view of the deteriorating services rendered to the
public and also having regard to the fact that services so rendered by banks in irresponsible
manner, which are not only inefficient but deficient in character and in the said stress and
strain, the public/customer is put pillar to post without having any remedy, it felt necessary to
have a separate for a to receive and resolve such grievances. Of course, the Consumer
Protection Act, 1986 or courts, has taken care of it but as of now consumer forum is hard
pressed with the alarming rise in number of cases.

In the banking sector, so far consumer or customer are concerned, their grievances are many
and varied. Reserve Bank of India (RBI) is flooded with complaints. They received complaint
and forward the complaint to concerned bank and banks are required to submit comment and
confirm that grievance of the customers stand redressed. Whether it is redressed or not, paper
transactions take place. Banking sector is constantly under criticism by press, public and
estimate committees. Various committees, commissions and working group were formed to
go into the issue since 1972. Banking Commission was headed by Sri R. G. Saraiya followed
by Sri. R.K. Talwar which made as much as 172 recommendations and lastly report of the
Goiporia Committee is a step further as to the sustained anxiety of RBI towards improvement
of customer services in banks. Banks have implemented the recommendations to greater
extent still there is no perceptible change in the quality of customer services and still the
deficient areas are palpably visible and the customer remain dissatisfied. The ‘Narasimhan’
Committee on “Banking and Financial Sector Reforms” examined these critical areas and
recommended introduction of the “Banking Ombudsman Scheme 1995” as a part of Financial
Sector Policy and Systems Reforms 1991-92 to 1995-96. Recommendations are very much
significant and certainly, it was a needed requirement. This is timely in the changing needs of
the customers, in the context of growing liberalization in the banking and financial sectors
along with the growing awareness amongst customers, of their rights. On this background
RBI has accepted the recommendation and as a part of banking policy, Dr. C.Rangarajan;
Governor, announced the “The Banking Ombudsman Scheme” on June 14, 1995. The
scheme was issued under the provision of Banking Regulation Act, 1949, covers all
Scheduled Commercial Banks and the Scheduled Primary Co-operative Banks having
business in India. The Scheme has become operative from June 1995. Initially Ombudsman
was appointed on full time basis in three centres i.e. Mumbai, New Delhi, and Bhopal but
subsequently its base for operation has been expanded. The aim and objective mechanism of
ombudsman is to deliver quick and inexpensive facility to resolve grievances of customers
arising out of deficient services rendered by the banks. Hence, banking ombudsman is in
place to cater to public complaints against deficiency in banking services concerning
operation of deposit accounts and loans and advances. Paradigm Shift of Banking
Ombudsman Scheme 1995 to Banking Ombudsman Scheme of 2006 with latest amendment
in 2017 ; the attempt over years has been to extend the scope and jurisdiction of the Banking
ombudsman to hitherto uncovered areas.

This has been done in two ways:

1. Coverage of banks: under the 1995 Scheme, only commercial banks and Scheduled
Primary Co-operative Banks, having a place of business in India, were covered. Then 2002
Scheme broadened the operation of the ombudsman by including within the definition of
‘bank’ such entities as Regional Rural Banks, State Bank of India, and ‘subsidiary bank’ as
defined in Part I of the Banking Regulation Act, 1949. Even the Scheduled Commercial
banks are covered under the latest scheme of 2006.

2. Entertainment of Complaints: the Ombudsman Scheme lays down the grounds on which
complaints can be entertained by the Ombudsman. The trend over the year has been to extend
the jurisdiction of ombudsman. The RBI has expanded the scope of the banking ombudsman
to include customer complaints relating to credit cards, deficiencies on the part of sales
agents of banks to provide promised services, levying service charges without prior notice to
the customer and non-adherence to the fair practices code as adopted by individual banks.

In order to make the scheme more effective, the RBI has decided to take the onus of
recruitment and funding of the scheme. It has also allowed complainants to file their
complaints online and appeal to it against the judgments given by the banking ombudsman.

The Banking Ombudsman Scheme, 1995 was notified by RBI on June 14, 1995 in terms of
the powers conferred on the Bank by Section 35A of the Banking Regulation Act, 1949 (10
of 1949) to provide for a system of redressal of grievances against banks. The Scheme sought
to establish a system of expeditious and in expensive resolution of customer complaints. The
Scheme which is in operation since 1995 has been revised during the year 2002 and 2006.
The Scheme is being execute and administered by Banking Ombudsmen appointed by RBI at
15 centers covering the entire country.
 BANKING OMBUDSMAN SCHEME, 2006
Scope of Scheme

In 2006, the Reserve Bank of India announced the revised Banking Ombudsman Scheme
with enlarged scope that included customer complaints on certain new areas, such as, credit
card complaints, deficiencies in providing the promised services even by banks' sales
agents, levying service charges without prior notice to the customer and non adherence to the
fair practices code as adopted by individual banks.

Vision of banking Ombudsman Scheme

To be a visible and credible system of dispute resolution mechanism for common persons
utilizing banking services.

Goals of Banking Ombudsman Scheme

i. To ensure redressal of grievances of users of banking services in an inexpensive,

expeditious and fair manner that will provide impetus to improved customer services
in the banking sector on a continuous basis.

ii. To provide feedback/suggestions to Reserve Bank of India towards framing

appropriate and timely guidelines to banks to improve the level of customer service
and to strengthen their internal grievance redressal systems

iii. To enhance the awareness of the Banking Ombudsman Scheme.

iv. To facilitate quick and fair (non-discriminatory) redressal of grievances through use
of IT systems, comprehensive and easily accessible database and enhanced
capabilities of staff through training.

Appointment and Tenure of Bank Ombudsman

Under the 2006 Scheme, it is stipulated that the RBI may appoint one or more officers in the
rank of Chief General Manager or Manager to be known as Banking Ombudsman to carry out
the functions entrusted to them by or under the scheme. This appointment is made for the
period not exceeding three years. For effective implementation of this scheme Reserve Bank
of India has set up fifteen Bank ombudsman offices across the country.
Application of the Scheme

The scheme is applicable to all commercial banks, regional rural banks and scheduled
primary cooperative banks having business in India.

Funding

Unlike the old scheme, the revised Banking Ombudsman Scheme is fully staffed and funded
by the Reserve Bank instead of the banks.

Filing Complaints

Under the revised Banking Ombudsman Scheme, the complainants can file their complaints
in any form, including online.

1. Grounds of complaint.

A complaint on any one of the following grounds alleging deficiency in banking service may
be filed with the Banking Ombudsman having the jurisdiction:

i. non-payment/inordinate delay in the payment or collection of cheques, drafts, bills

etc.;
ii. non-acceptance, without sufficient cause, of small denomination notes tendered for
any purpose, and for charging of commission in respect thereof;
iii. non-issue of drafts to customers and others;
iv. non-adherence to prescribed working hours by branches;
v. failure to honour guarantee/letter of credit commitments by banks;
vi. claims in respect of unauthorised or fraudulent withdrawals from deposit accounts, or
fraudulent encashment of a cheques or a bank draft etc.,
vii. complaints pertaining to the operations in any savings, current or any other account
maintained with a bank, such as delays, non-credit of proceeds to parties' accounts,
non-payment of deposit or non-observance of the Reserve Bank directives, if any,
applicable to rate of interest on deposits.
viii. complaints from exporters in India such as delays in receipt of export proceeds,
handling of export bills, collection of bills etc., provided the said complaints pertain to
the bank's operations in India;
ix. Complaints from Non-Resident Indians having accounts in India in relation to their
remittances from abroad, deposits and other bank-related matters.
 x. Complaints pertaining to refusal to open deposit accounts without any valid reason for
refusal and
xi. Any other matter relating to the violation of the directives issued by the Reserve Bank
in relation to banking service.

2. Procedure of filing complaint

1. Any person who has a grievance against a bank relating to the banking services as
enumerated under Clause 12 of the Scheme, may himself or through his authorized
representative make a complaint to the Banking Ombudsman within whose
jurisdiction the branch or office of the bank complained against is located.
2. The complaint shall be in writing duly signed by the complainant or his authorised
representative (other than an advocate) in a form specified in Annexure-A of the
Scheme and shall state clearly the name and address of the complainant, the name
and address of the branch or office of the bank against which the complaint is
made, the facts giving rise to the complaint supported by documents, if any, that
are desired to be relied upon by the complainant, the nature and extent of the loss
caused to the complainant, the relief sought from the Banking Ombudsman and a
declaration about the compliance of the conditions referred to in sub-clause (3) of
this clause.
3. No complaint to the Banking Ombudsman shall lie unless:-
i. the complainant had before making a complaint to the Banking Ombudsman made
a written representation to the bank named in the complaint and either the bank had
rejected the complaint or the complainant had not received any reply within a
period of one month after the bank concerned received his representation or the
complainant is not satisfied with the reply given to him by the bank.
ii. the complaint is made not later than one year after the cause of action has arisen as
per clause (a) above;
iii. the complaint is not in respect of the same subject matter which was settled
through the Office of the Banking Ombudsman in any previous proceedings
whether or not received from the same complainant or along with any one or more
complainants or any one or more of the parties concerned with the subject matter;
iv. the complaint does not pertain to the same subject matter, for which any
proceedings before any court, tribunal or arbitrator or any other forum is pending
 or a decree or Award or a final order has already been passed by any such
competent court, tribunal, arbitrator or forum; and
v. the complaint is not frivolous or vexatious in nature.

3. Rejection of complaint

The Banking Ombudsman may reject a complaint at any stage if it appears to him that a
complaint made to him is:

i. frivolous, vexatious, mala fide or without any sufficient cause or

ii. that it is not pursued by the complainant with reasonable diligence or
iii. in the opinion of Banking Ombudsman there is no loss or damage or inconvenience
caused to the complainant or
iv. beyond the pecuniary jurisdiction of Banking Ombudsman or
v. in the opinion of the Banking

Ombudsman the complicated nature of the complaint requires consideration of elaborate

documentary and oral evidence and the proceedings before him are not appropriate for
adjudication of such complaint.

Settlement of disputes

On the receipt of a complaint, the first objective of the ombudsman is to promote a settlement
of the complaint by agreement between the complainant and the bank through conciliation or
mediation. If the complaint is not settled by agreement within a period of one month from the
date of the receipt of the complaint, the Ombudsman shall pass an award after giving the
reasonable opportunity to the parties for presenting their case. In passing the award, the
ombudsman shall be guided by the documentary evidence placed before him by the parties,
the principle of banking law and practice, directions issued by theRBI etc.

The award passed shall contain the direction/s, if any, to the bank for specific performance of
its obligations and in addition to or otherwise, the amount, if any, to be paid by the bank to
the complainant by way of compensation for any loss suffered by the complainant, arising
directly out of the act or omission of the bank.

After an award is passed, its copy is sent to the complainant and the bank named in the
complaint. It is open to the complainant to accept the award in full and final settlement of his
complaint or to reject it. If the award is acceptable to the complainant, he is required to send
to the bank concerned, a letter of acceptance of the award in full and final settlement of his
complaint, within a period of 15 days from the date of receipt of the copy of the award by
him.

The Banking Ombudsman shall not have the power to pass an award directing payment of an
amount which is more than the actual loss suffered by the complainant as a direct
consequence of the act of omission or commission of the bank, or ten lakh rupees whichever
is lower. However, in the case of complaints, arising out of credit card operations, the
Banking Ombudsman may also award compensation not exceeding Rs. 1 lakh to the
complainant, taking into account the loss of the complainant's time, expenses incurred by the
complainant, harassment and mental anguish suffered by the complainant.

Appeal before the appellate authority and review of the award

The 1995 scheme had no provision for the review of the ombudsman’s award. However,
under the 2002 scheme, a Review Authority was established. The appellate authority is the
Deputy Governor in the Reserve Bank of India. Either party aggrieved by the award may,
within 45 days of the date of receipt of the award, appeal against the award before the
appellate authority. The appellate authority may, if he is satisfied that the applicant had
sufficient cause for not making an application for appeal within time, also allow a further
period not exceeding 30 days. The Appellate Authority, after giving the parties a reasonable
opportunity of being heard may:

i. dismiss the appeal; or

ii. allow the appeal and set aside the award; or
iii. send the matter to the Banking Ombudsman for fresh disposal in accordance with
such directions as the appellate authority may consider necessary or proper; or
iv. modify the award and pass such directions as maybe necessary to give effect to the
modified award; or
v. pass any other order as it may deem fit.

Awareness of the scheme

For greater awareness of the scheme it is now mandatory for the banks to ensure that the
purpose of the scheme and the contact details of the Banking Ombudsman to whom the
complaints are to be made by the aggrieved party should be displayed prominently in all the
offices and branches of the bank in such a manner that a person visiting the office or branch
has adequate information.

BANKING OMBUDSMAN SCHEME- HOW DIFFERENT FROM THE SCHEMES OF 1995 AND
2002.

The extent and scope of the new Scheme is wider than the earlier Scheme of 2002. The new
Scheme also provides for online submission of complaints. The new Scheme additionally
provides for the institution of an 'appellate authority' for providing scope for appeal against
an award passed by the Ombudsman both by the bank as well as the complainant.

CASE STUDY ON BANKING OMBUDSMAN SCHEME

Vettivel Pillai V/s Senior Manager Canara Bank1

The appellant was having open cash credit facility from 1994 with respondent bank and had
issued two cheques of which one was encashed and the other was dishonored. Respondent
bank averred that appellant had overdrawn account. It was held that when there was credit in
favour of the complainant, dishonour of the cheque issued by the complainant could not be
said to be bonafide. Respondent bank was held guilty of deficiency of service and appellant
was held entitled for compensation.

The AGM, State Bank of India, Pondicherry &Ors V/s N.Ganesan2

The complainant’s son remitted an amount on 5.04.1997 from abroad to be credited to his

NRI account with appellant bank.  The remittance was not confirmed till 22.04. 1997.
Appellant bank pleaded that non- confirmation was due to failure of computers. The issue is
whether this delay on the part of the bank amounted to deficiency in service. The
Commission in appeal observed that bank officials could have verified vouchers and
cheques received by post or confirmation and could have given correct reply within a
reasonable time. It was held that failure of the bank to confirm remittance received from
outside country within a reasonable period amounts to deficiency in service.

1
Vettivel Pillai V/s Senior Manager Canara Bank, 2000(2) CPR 261 SCDRC (Ker).
2
The AGM, State Bank of India, Pondicherry &Ors V/s N. Ganesan, 2000(3) CPR 423 SCDRC (Pond).
Balla Rama Rao v. Banking Ombudsman3

A house in the name of B. Narayanama was given on lease to the bank in 1982.Subsequently,
the lady died. The Bank did not pay rent from June 1992 to Feb. 1997.Balla Ramarao, the
appellant approached the bank. Bank immediately paid the amounts. 3, 09,562. Balla
contended that the interest should also be paid for the period of 1992to 1997. The bank
refused to pay interest. The appellant approached to the banking ombudsman. But he rejected
the complaint, holding no merit in the case as it was outside the jurisdiction of the banking
ombudsman. Balla approached to the Andhra Pradesh high court. The high court rejected the
appeal, finding that it was outside the jurisdiction of the banking ombudsman.

Corporation Bank &Anr V/s Navin J. Shah4

Respondent, who is an exporter under discounting agreement entrusted documents relating to

export and bills of exchange with appellant bank to negotiate the same through a foreign
bank. Respondent’s allegation is that the bank had failed to collect money in foreign currency
indicated in documents but instead collected in local currency, hence there was deficiency in
service on the part of the appellant bank and hence a claim for damages was made. In appeal,
the Commission held that there was no deficiency of service on the part of the bank as the
appellant bank, acting for an on behalf of the respondent, had negotiated the documents as
provided under agreement. However the conversion of local currency in U.S. $ became
difficult on account of policy of Sudan Government. It was observed that all that was
required to be done under terms of the agreement and under contract had been done by the
two banks.

Anthony C. Vaz V/s M/s Himachal Futuristic Communication Ltd &Anr 5

Dividend warrants were issued by respondent No.1 and were sought to be encashed by
respondent No.2, Banker at Panaji. The appellant filed a complaint before the District Forum
as the warrants were returned unpaid with the remarks ‘No advice’ despite a letter dispatched
to them by Industrial Financial Branch of SBI, Chandigarh. Respondent No.2 took the
defense that they cannot honour dividend warrants unless they received intimation from local
Head Office at Mumbai. The State Commission however held that refusal to clear the
dividend warrant was deficiency in service as question of respondent No.2 having no
3
Balla Rama Rao v. Banking Ombudsman,(2003) 117 Comp Cas201
4
Corporation Bank &Anr V/s Navin J. Shah, 2000(2) CPR 13 (SC).
5
Anthony C. Vaz V/s M/s Himachal Futuristic Communication Ltd &Anr,2000(2) CPR 83 SCDRC (Goa).
authority to honour the warrants could not arise in view of the letter from Industrial Financial
Branch of SBI, Chandigarh. Respondent No. 2 and Respondent No. 1 were held to be jointly
liable.

Brijesh Kumar &A.R.Lakshmanan Vs. Canara Bank &anr6

The Bank charging, unilaterally without prior information or consent of the Bank Customer,
for providing their services by supply of MICR Cheque. Consumer Forum and State
Commission held it as deficiency of service but National Commission held that it was related
to pricing and not in jurisdiction of the Consumer Fora to decide. The Supreme Court held
that the charges by bank for issuance of MICR cheques is not against the directives of the
Reserve Bank of India. The question of it being unilateral or with the consent of each
customer do not arise.

India Export Corporation &ors Vs. Chairman-cum-MD, Syndicate Bank &ors7

The complainant withdrew overdraft facility sanctioned to him by the bank only after
availing facility to the extent of Rs.1,20,000/-. The facility was availed by the complainant
for business purpose. It was held that where complaint alleging banking service deficiency
was found connected with commercial purpose, the consumer complaint would not be
maintainable.

Col. D.S.Sachar Vs. Zonal Manager, Punjab & Sind Bank, Cahndigarh&anr 8.

Cash was snatched from the hands of the complainant/appellant at the gate of the respondent
bank. The appellant alleges that the absence of security on the gate and the non-provision of
steps like siren/alarm system etc. amounts to deficiency in service on the part of the
respondent bank. The State Commission held that the non-provision of security on the gate of
the bank on the date of occurrence viz. snatching of cash in bank premises cannot be held to
be amounting to deficiency in service hired by complainant.

6
Brijesh Kumar &A.R.Lakshmanan Vs. Canara Bank &anr,2003 (1) CPR 296 (SC).

7
India Export Corporation &ors Vs. Chairman-cum-MD, Syndicate Bank &ors, 2003 (3) CPR 106 (NC).

8
Col. D.S.Sachar Vs. Zonal Manager, Punjab & Sind Bank, Cahndigarh&anr ,2003 (3) CPR 203 SCDRC
(Chandigarh).
RatanchandMorarkarVs. Bank of Maharashtra9

The complainant had deposited amount for issue of pay order in favour of a particular firm.
However, the said pay order was cancelled by the bank and was issued in favour of another
party. It was held that when the bank has acted in good faith in cancellation of bank pay order
and issuance of fresh pay order in favour of another party on the request made by Manager of
the complainant firm, there would be no deficiency in service.

BANKING OMBUDSMAN SCHEME AMENDMENT, 2017

The Reserve Bank of India has widened the scope of its Banking Ombudsman Scheme 2006,
to include, inter alia, deficiencies arising out of sale of insurance/ mutual fund/ other third
party investment products by banks. Under the amended Scheme, a customer would also be
able to lodge a complaint against the bank for its non-adherence to RBI instructions with
regard to Mobile Banking/ Electronic Banking services in India.
The pecuniary jurisdiction of the Banking Ombudsman to pass an Award has been increased
from existing rupees one million to rupees two million. Compensation not exceeding rupees
hundred thousand can also be awarded by the Banking Ombudsman to the complainant for
loss of time, expenses incurred as also, harassment and mental anguish suffered by the
complainant.
The procedure for complaints settled by agreement under the Scheme has also been revised.
Appeal has now been allowed for the complaints closed under Clause 13 (c) of the existing
Scheme relating to rejection which was not available earlier.
The Reserve Bank has released a Notification dated June 16, 2017 amending the Banking
Ombudsman Scheme 2006. The amended Scheme shall come into force from July 1, 2017.
The amended Scheme is available on the Reserve Bank's website at
https://www.rbi.org.in/commonman/English/Scripts/AgainstBank.aspx

9
RatanchandMorarkarVs. Bank of Maharashtra,2004 (1) CPR 66 (NC).